Algeria Considering 2016 Tax Hikes, Import Duties to Cover Deficit

Source: Reuters 9/16/2015, Location: Africa

Algeria is considering higher taxes, import duties and a hike in subsidized diesel and electricity prices to help cover its deficit after a slump in crude oil prices eroded its revenues, a preliminary draft of its 2016 budget showed.

An OPEC member and a major gas supplier to Europe, Algeria relies on energy for 60 percent of its state budget. Oil and gas exports account for 95 percent of all the North African country's sales abroad.

In view of the collapse in world petroleum prices, the government has said it expects Algeria's energy export earnings to fall 50 percent to $34 billion this year, while its import bill is projected at $57.3 billion, little changed from 2014's $58 billion.

That threatens to widen the North African state's trade deficit, which reached $8.041 billion in the first seven months of 2015, compared with a $3.9 billion surplus in the same period last year.

Last week, the central bank said a state fund used to hold surplus oil revenue to cover deficits had seen a 33.3 percent drop in its resources since June 2014, when crude prices started falling.

Officials have said the deficit will not impact subsidy policies - energy revenues finance billions of dollars worth of free housing, subsidized food, fuel and products for Algerians.

But authorities are seeking alternatives to fill the gap.

The government has already announced a 9 percent cut in spending for next year.

According to a copy of the 2016 preliminary draft seen by Reuters , the government plans to raise the value-added tax (VAT)for electricity from the current 7 percent to 17 percent when consumption exceeds 125 kilowatt hour (kwh).

The VAT hike will also apply to 3G internet services, while the government is also considering increasing taxes on new vehicles.

The government is still discussing the draft before passing it to parliament for final endorsement.

Domestic prices for energy products are very low by international standards, which analysts say is the main reason behind high consumption rates in the country of 40 million people.

"The new measures may improve state finances and reduce consumption. Algerians consume too much because of low prices," said international consultant and former presidential adviser Abdelmalek Serrai.

As part of attempts to ease its import bill, the draft also includes customs duties estimated at 30 percent on computers.

Algeria's government has already suspended some large infrastructure projects it had planned as a cost-saving project and is trying to curb massive imports in an attempt to shore up its foreign reserves.